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Merchants, Unions Press Congress on Credit Card Abuses

Coalition sends letters to lawmakers demanding action on card fees

By Martin H. Bosworth
ConsumerAffairs.com

July 15, 2008

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Several merchants teamed up with a prominent labor union to send letters to every member of the House of Representatives today, demanding action on bills that would restrict credit card companies' more abusive practices. The coalition wants Congress to stop what it called "the abuse of American consumers and businesses by credit card companies and big banks."

The Service Employees International Union (SEIU), the Food Marketing Institute (FMI), National Association of Convenience Stores (NACS), and the National Grocers Association (NGA) sent letters to all 535 House members asking them to pass the "Credit Card Fair Fee Act of 2008," which would enable retailers to negotiate credit card interchange fees with card companies under the oversight of government regulators.

The coalition also called for passage of "The Credit Card Bill of Rights Act," legislation introduced by New York Democrat Carolyn Maloney that would ban "bait and switch" interest rate hikes and punitive fees for credit card holders.

"The credit card industry has moved steadily over the last several years to impose more burdensome penalties and fees on cardholders--ratcheting up interest rates as high as 30 percent," the coalition said in its letter.

"At the same time, the industry has dramatically increased credit card interchange fee revenues. These pieces of legislation are important steps forward in ending the abusive credit card practices that drain billions of dollars from working families and retailers each year."

Interchange fees, the charge retailers and merchants pay when processing credit and debit card transactions, are set by card issuers such as Visa and MasterCard in conjunction with the major banks. The fees are often so expensive that retailers lose money on purchases made with plastic, forcing them to raise the prices of all their goods in order to break even.

The fees led several merchant associations to file a class action lawsuit against MasterCard, Visa, and the major banks in 2005, claiming they were engaged in collusive behavior to set the fees in violation of antitrust law.

The lawsuit and resultant media attention led to hearings on Capitol Hill, where representatives of the retail industry urged Congress to exercise more oversight over the "hidden" fees that penalized both retailers and consumers without their knowledge.

"Credit card abuse is incredibly frustrating for our members," said Tom Wenning, senior vice-president and general counsel for NGA. "They see how much money is taken out of their businesses in credit card fees and then they see the high rates and fees they get hit with as individual consumers. The credit card companies hit all of us twice – and many people don't even know it."

Coming and Going

Even as retailers struggle with the costs of interchange fees, credit card holders have been hammered with increasing defaults and delinquencies, as the housing meltdown, rising food prices, and the moribund economy have pushed them deeper into debt.

As banks struggle to cushion their losses from the housing crash, many have cut back on customers' credit limits while they increase fees for late payments and hike interest rates, even for cardholders who make payments on time or have low balances.

Consumers have criticized banks for "gotcha" tactics such as changing a payment's due date without warning in order to incur penalty and late fees.

"The biggest banks have put working families and the economy on a rollercoaster," said SEIU's Stephen Lerner. "Lawmakers and regulators have to act before the fees and bad practices hurting consumers derail the economy altogether."

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